Archives of “Repurchase agreement” tag

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Fed increases sizes of overnight, term repo operations

  
  Analysis
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The Fed just hiked the amount offered in its repo operations

The statement via the NY Fed:

“The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has updated the current monthly schedule of repurchase agreement (repo) operations.

Beginning with today’s operation and through March 12, 2020, the Desk will increase the amount offered in daily overnight repo operations from at least $100 billion to at least $150 billion. In addition, the Desk will increase the amount offered in the two-week term repo operations on Tuesday, March 10, 2020 and Thursday, March 12, 2020 from at least $20 billion to at least $45 billion.”

You can check out the other smaller details here. Not QE they said. Things will go back to normal soon enough they said. Look where are we now.

More Powell testimony: Will see virus impact in data fairly soon

  
  Analysis
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More from chair Powell’s testimony in the Senate

  • we will see virus-infected data fairly soon
  • affects could be important in China
  • supply chains is an important issue.
  • Financial markets can also transmit a reaction to virus

Fed Powell concludes his testimony at 11:24 AM ET.

Overall, the comments were in line with yesterday’s testimony and really didn’t shed any new light that we don’t already know. Coronavirus major concern but it’s too early to tell. The Fed is in continue repo operations the 2nd quarter. The economy is in a good place.
US stocks have been waffling back and forth but moving back higher. The S&P index is just off the day’s high level as is the NASDAQ index. The Dow industrial average is a little further off the intraday record high levels

China cuts rates

  
  Analysis
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China cuts rates on reverse repos

  • the rate on 7-day reverse repos goes to 2.4% from previously at 2.5%
  • on 14-day RRs goes to 2.55% from 2.65%
This is part of stimulus efforts to combat the negative economic impact of the coronavirus outbreak and spread.
There was a big injection of funds today (but there is a but):
  • 900bn yuan added via 7 day RRs
  • 300bn via 14-dayers

20 risks to markets in 2020 – Use them to make profit

  
  Analysis
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Watch out for those risks

What exactly are the risks to the markets that you should pay attention to? The chief economist of Deutsche Bank Torsten Slok has prepared a list of top 20 risks to global markets in 2020. Each one of them may trigger a downtrend.

  1. Continued increase in wealth inequality, income inequality and healthcare inequality.
  2. Phase one trade deal remains unsigned, continued uncertainty about what comes after phase one.
  3. Trade war uncertainty continued to weigh on corporate capex decisions.
  4. Ongoing slow growth in China, Europe and Japan Triggering significant US dollar appreciation.
  5. Impeachment uncertainty & possible government shutdown.
  6. US election uncertainty; implications for taxes, regulation and capex spending.
  7. Antitrust, privacy and tech regulation.
  8. Foreigners lose appetite for US credit and US Treasuries following Presidential election.
  9. MMT-style fiscal expansion boosts growth significantly in US and/or Europe.
  10. US government debt levels begin to matter for long rates.
  11. Mismatch between demand and supply in T-bills , another repo rate spike.
  12. Fed reluctant to cut rates in an election year.
  13. Credit conditions tighten with more differentiation between CCC and BBB corporate credit.
  14. Credit conditions tighten with more differentiation between CCC and BBB consumer credit.
  15. Fallen angels: More companies falling into BBB. And out of BBB into HY.
  16. More negative-yielding debt sends global investors on renewed hunt for yield in US credit.
  17. Declining corporate profits means fewer dollars available for buybacks.
  18. Shrinking global auto industry a risk for global markets & economy.
  19. House price crash in Australia, Canada and Sweden.
  20. Brexit uncertainty persists.

The short-term dollar funding market is feeling the squeeze

  
  Analysis
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The repo market isn’t healthy

The combination of corporate debt issuance and quarterly tax payments resulted in a shortage of dollars today. That pushed the borrowing rate on overnight repos up by 153 basis points to 3.80%.
A similar phenomenon took place last December and caused much hand-wringing (but ultimately little FX movement).
The timing of this move is particularly interesting because it comes ahead of the Fed decision. There will be some focus on the Fed funds effective rate today and whether it rises from the 2.14% level today. The FOMC targets 2.00-2.25% currently and there’s talk that it’s trading at 2.20%.
Today’s move might have sparked some outright USD buying rather than borrowing among corporates and that could be what’s weighing on EUR/USD.
Keep an eye on how it develops tomorrow.
The repo market isn't healthy
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